A Budget of dodgy assumptions and double dealing

Turnbull and Morrison's Budget costing omission on company tax cuts 'is a gross tactical error — a blunder which may well just have handed Labor the election', writes David Tyler.

SCOTT MORRISON and Malcolm Turnbull’s cunning plan not to provide costings for their ten year tax giveaway has blown up in their faces.

Whatever they may claim about not wishing to “do Shorten’s homework for him”, their decision to leave costings out of the Budget paper is a gross tactical error — a blunder which may well just have handed Labor the election.

Of course, there are other possible explanations. Morrison’s excuse that he was merely being mean and tricky may just be a cover up. The junk-yard dog ate his homework. Or, he may simply have been left out of the loop again by a PM who has every reason not to trust a ruthlessly ambitious cabinet member, widely believed to have been the Abbott Government’s best leaker.

Yet the PM must have known. And the fiasco has highlighted the Coalition’s predilection for deception. This is a Budget of dodgy assumptions and double-dealing.

Take the deceptive way this is billed as Morrison’s first Budget. It is no such thing. It is the Coalition’s third attempt and it is vital to read it in the context of all its prior decisions — $13 billion of family tax, maternity leave and PBS cuts which still remain on the books to boost the Budget’s bottom line, even though they have not been passed by parliament’s upper house.

This is the third in a series of failed tests where the self-styled “better economic managers” have already lost the public’s confidence and are wasting the nation’s time.

Yet Morrison’s inattention to detail or his ploy to get Bill may not be such a bad thing.

On the contrary, the Treasurer may have done voters a service in arousing suspicion. The public will come to see that the Budget centrepiece of a ten year tax handout for business is based on the entirely erroneous assumption that cutting tax for business owners and the top quarter of wage and salary earners will stimulate the economy. It’s a budget based on a lie.

Although the Prime Minister had denied that treasury had done any costings of the ten year tax cut to companies, Fraser admits, with excruciating indirection and languid delay, that these amounted to “dollars 46 billion” — a bizarrely jargonised admission that, yes, now that you mention it, Senator Wong, Treasury has done the costings and the cost would blow a $50 billion dollar fleet of submarines out of the water, even if they were still at the conceptual stage.

Fraser hangs Turnbull out to dry on the previous day’s line that the Treasury had not costed the tax cuts. For all his talk about innovation and agility, the PM is hoist by his own petard. Before voters even get an election date officially declared, we are left dwelling on the Government’s duplicity; its maladroit strategy of conniving to trick the Labor leader into making a bad guess.

Yet there is an even bigger deception at hand. The Budget centrepiece is founded on the fiction that cutting taxes for companies and for the quarter of the workforce who earn more than $80,000 will stimulate economic growth. It won’t. Nor will it do to lie about how many of us earn $80,000.

Astonishingly, the top 25% become "average wage-earners" in the PM’s radio interviews or “middle income earners”. The Australia Institutecalculates, however that counting all wage-earners, it may be as few as 18%. The electorate that will do best out of this Budget’s income tax cuts is the PM’s own of Wentworth or "Networth" as it is has so aptly dubbed. Ordinary Australians are left out in the cold.

Central to the Budget’s calculations is that notion that making the rich richer makes all Australians prosper. To this false assumption it adds investment and jobs. Given its record so far, however, these are the last claims this government should be making.

Tax attack dog Morrison whose false accusations that Save the Children workers were coaching refugees to self-harm on Nauru two years ago, have resurfaced in a compensation settlement this week, as has another equally implausible slogan that can only, once again, draw attention to his Government’s lack of achievement.

Morrison chooses to campaign on jobs, investment and growth. Yet after nearly three years, growth is forecast to be well below par at 2.5% for the next two years, rising then to a minimal 3%.

Unemployment is at least 5.5%. Business investment will be flatlining at zero growth in 2017-2018.

Job figures, of course, can be fudged in many ways – including absorbing punters into internships – but the growth boast beggars belief at a time when the Reserve Bank is cutting interest rates because growth is feebly declining and inflation is plummeting. As with climate change, marriage equality or safe schools, the Coalition is well and truly in denial.

Denial is the bedrock of the Coalition’s latest Budget attempt. At massive expense to ordinary tax payers, the Abbott-Turnbull Government's main Budget strategy is based entirely on the superstition that wealth will trickle down, or that cutting company tax will boost productivity, a notion which is now so well-disproved that even economist Arthur Laffer, its guru, no longer believes his own theory.

A big taxing, big spending Government, the Coalition has produced in it its third Budget an Enterprise centrepiece. An ill-judged, expensive and unnecessary handout to those who run businesses or who earn over $80,000, on the pretext that this will kick-start a halting economy. Turnbull's “innovative” prime ministership has a plan which relies on nothing more than the old, discredited trickle-down theory and a bit of dodgy supply-side economics.

Putting aside its need to please the self-interested urgings of the Business Council of Australia, the IPA and others for a moment, company tax cuts are completely counterproductive, illogical and damaging to economic recovery.

Company tax cuts do not cause economic growth. Even Treasury can tell the Government this. Cutting company tax has never stimulated any economy — not in Australia or anywhere else. Nor will cuts cause prosperity for all in the future.

When Treasury modelled a 1% cut in 2014, the benefits flowed in the short to medium term solely to the business or company.

Companies simply pocket the difference in higher profits. Some of these profits do ultimately return to the economy as dividends. Multinational corporations, however, including the Coalition’s newest chum, submarine builder DCNS can just take the money off shore.

In the long run, cutting company income tax leads to a tiny increase to GDP of 0.15-0.2% — if and when an increased influx of foreign capital rushes to fund projects that wouldn't be viable under the higher tax rate.

Treasury finds no case for company tax cuts. Yet not only is the Coalition prepared to risk an estimated $60 billion to defy its own Treasury modelling and ignore the lessons of history, it is prepared to defy the laws of economics while cutting Government spending to "live within our means".

Turnbull is prepared to throw public money away in a bizarre gamble against the odds. Renowned economists Joseph Stiglitz and Paul Krugman, have argued repeatedly that cutting spending while the economy is slowing results in increased unemployment. Yet they are mere Nobel laureates. What would they know?

Both argue that reducing inequality, not increasing it, will boost productivity. And both point to the key role of education.

What these experts would tell this Government is that education is the key. Economists the world over hold that the best way to increase productivity, labour-force participation and GDP growth is to invest in education. Yet the Coalition's 2016 Budget cuts Gonski funding by a quarter. New strings are attached.

Morrison's Budget does not replace the cuts made by Abbott and Hockey to schools and in tertiary education. It even adds a big new cut. Despite backing down on university fee deregulation, the Turnbull Government wants to cut university funding by $1.5 billion. Vice Chancellors will have every reason to feel betrayed.

So, too, will teachers feel betrayed to discover that only $1.2 million or a quarter of full Gonski funding for schools survives in this Budget. Hollow, if not hypocritical, is Morrison’s boast in the Budget preamble of making provision for future generations.

In brief, the Coalition Government is prepared to defy all evidence, abandon all pretence at fairness, even do a bit of cheating with its figures in order to satisfy its appetite for the trickle-down theory.

Another explanation is that the Coalition is hell-bent on appeasing its powerful business backers and the majority of Australians can just go hang. We will see what ordinary Australians make of that assumption on 2 July.